Monday, November 30, 2009

If Warren Buffett has it right, then analysts have it all wrong when it comes to future earnings for the North American railways, says a new report from Scotia Capital Markets.

Based on a new SEC filing associated with Berkshire Hathaway's US$100 bid to acquire Burlington Northern Santa Fe Corp., analyst Cherilyn Radbourne said consensus profit estimates for the Big Six Class I railroads look inflated and may need to be adjusted downward.

Ms. Radbourne said that according to the filing, financial advisors to Berkshire's board responsible for determining the fairness of the deal relied on financial forecasts prepared by Burlington Northern management based on four economic scenarios: Recovery in 2010; recovery in 2011; no recovery; and lastly a deeper recession case that assumed a general worsening of economic conditions over the next five years....MORE

The French government is set to recommend a joint 4 billion-euro ($6 billion) bid by Alstom SA and Schneider Electric SA for Areva SA’s transmission and distribution unit, two people familiar with the matter said.

A final decision will be made by Areva’s supervisory board, which meets tonight, said the people, who spoke on condition of anonymity because the decision hasn’t been disclosed. General Electric Co. and Toshiba Corp. also made bids.

Areva is 91 percent owned by the French government, which had the final say in choosing a winner. Paris-based Areva became the third-largest provider of power transmission and distribution equipment behind ABB Ltd. and Siemens AG after buying the unit in 2004 for 920 million euros from Alstom. French President Nicolas Sarkozy orchestrated the sale as finance minister to avert Alstom’s breakdown.

Areva is selling the unit again to fund expansion in the global nuclear power market. Alstom, which makes high-speed trains and energy-generation equipment, and Schneider, a maker of circuit breakers, have said they would create a common structure which would bid for Areva T&D and, if successful, transfer the transmission activities to Alstom and the distribution activities to Schneider.

And anyone who pretends otherwise is a liar or a fool.The reality of what traders spend their time doing puts the lie to the argument that "we need offsets to 'lower the cost'" of implementing cap-and-trade.The entire purpose of C&T is to raise costs and the entire purpose of offsets is wealth transfer with a government imprimatur.From The Telegraph:

"Why should it be different as a commodity to the way people trade oil or gas?"

As the man in charge of the world's biggest exchange for companies, banks and hedge funds to trade permits to emit carbon dioxide, Birley is fed up with the environmentalists' charge that dirty capitalists should not profit from the global effort to tackle climate change.

Ahead of the Copenhagen summit next week, campaigners such as Friends of the Earth have argued that the entire system is so flawed it may need to be demolished in favour of a straightforward tax on polluters.

Firstly, they insist, the European system has failed in its fundamental aim to reduce emissions, meaning its only effect is to redistribute wealth among companies and traders. Secondly, the market is a magnet for derivatives that few people understand, brewing up a second sub-prime bubble. Lastly, the opportunities for fraud are vast, given the intangible nature of the product. .

These well-worn concerns are resurfacing as the whole concept of carbon trading stands at a crossroads. This totally invented $126bn (£76bn) market has the potential to flare into a $2 trillion green giant over the next decade, if US President Obama manages to push his carbon trading bill through the Senate early next year.

The Commodities and Futures Trading Commission even believes that within five years, carbon could surpass crude oil as the world's most traded commodity. Mr Birley is the first to admit that the European system "hasn't actually reduced emissions" so far. But having run exchanges throughout his career, he has faith in the ability of the market to deliver in its own good time.

"The goal of the system is reducing emissions: why should it matter how we get there?" he asks.

With weariness, he debunks the idea that policymakers can control who makes money from reducing emissions. The point of a market mechanism is that the market decides.

"Carbon-related products are probably the most profitable part of trading for any of the investment banks right now, because the margins are so good," Mr Birley admits. "Because it's such a specialist area, a little bit of knowledge goes a very long way."...MORE

Well actually policymakers can go with cap-tax-and 100% rebate, they can go with 100% auction combined with annual minimum and maximum prices (thus recreating a tax), they can ban financial intermediaries and permit trading only among energy producers, they can... well, you get the idea.

The whole reason for the existence of traders is to make as much money as possible,consistent with what's legal...I lived through this:if you didn't manipulate the market and manipulation was accessible to you,that's when you were yelled at.-Former Goldman Sachs traderNew York Times, May 8, 2002*

From the junk bond caused S&L bailouts to Long Term Capital Management to the Dot.bombs to the California electricity frauds to sub-prime and credit default swaps the lesson is:

Wall Street can not be trusted. Period.

If we let the camel's nose under the tent flap it is too late. The Wall Street banks will game any system the regulators can think up.Remember, this is an entirely artificial "market" that Wall Street is "helping" to design.What the hell do you expect?>>>MORE

In very early pre-market trade the stock is down $1.38 at $33.30.From Notable Calls:

Sanford Bernstein is out with pretty negative comments on American International Group (NYSE:AIG) lowering their target to $12 from $20 after loss reserve analysis. Firm maintains their Undeperform rating on the stock.

Firm notes they conducted a segmented industry loss reserve analysis to see if it revealed any possible competitive issues that could emerge in the coming years. The main result is a letdown for the possibility of near-term pricing improvement. Every company subgroup—large publics, mutuals, reinsurance & international, and small privates—shows strong and relatively comparable loss reserve adequacy to the other segments. This means that no subgroup is more likely than another to outlast the soft market.

− In particular, average industry reserve adequacy of about 8 points of 2008 earned premium ($26bn dollar adequacy) ranged 4-14% across 4 industry subgroups they looked at. For the large US public companies in their coverage (excluding AIG), the average adequacy is about 11 points, concentrated in commercial lines and specialty businesses.

But they did reveal a very unexpected result that could have major ramifications in coming year. It appears that AIG's loss reserves are significantly deficient again, much sooner that they would have forecast 2 years ago....

...Notablecalls: AIG appears to be vulnerable here. I don't think people were ready for what Sanford Bernstein has to say this morning. If AIG's loss reserves are significantly deficient again, some odd $2 billion asset sales (as reported today by Financial Times) ain't going to help much.

This is negative for the whole financial system, I believe.

I expect AIG to trade down today. Could trade to $32 or possibly even lower.

On Tuesday we posted a neat video with Dan Ariely, a Duke behavioral economist, about tips for limiting your spending. As it turns out, Ezra Klein at The Washington Post wisely asked Professor Ariely how to apply those same economic principles to help readers limit another kind of consumption: Thanksgiving food.

Professor Ariely had a few suggestions for ways to reduce your turkey intake. They include:

I don't have anything concrete I can point to but 1.50 EUR/USD almost feels as if someone has drawn a line in the sand. As more and more money piles into the trade without movement past that line you start to lose the mo-mo traders and the psychology can shift fast.

If the buck were to turn and head back to say, 1.20, the results for equities and gold would be painful.I'm just sayin'...

It's either one of those "I may be in error but never in doubt" statements a rookie would never refer back to or it's a Maxwell Smart moment: "Missed it by thissss much".[or it's like spring '08 when you said $1.53 and we went to $1.59 in July -ed]I'm leaning toward Humble Student of the Markets' interpretation:

As good market analysts know, when the public gets on board a story, chances are everyone is already in the trade and the trend is likely to reverse soon. So it is with interest that I got the following viral email entitled "What good is a Dollar?"

I know Mr. Buffett said he'd hold the warrants until the day before expiration but still...From Bespoke Investment Group:

While there probably aren't a lot of people shedding tears over it, the stock of Goldman Sachs (GS) can't seem to get out of its own way. We've highlighted the relative weakness in this stock several times over the last few weeks, so this shouldn't come as any surprise, but GS is now on pace to close at its lowest levels since early November. Politicians in Washington and conspiracy theorists may be rejoicing in Goldman's misery, but if there's one thing Goldman employees can be thankful for it is that with the stock lagging the overall market, the intensity of public backlash directed towards the company seems to have abated. Next thing you know, the conspiracy theorists will claim that 'evil' Goldman is purposely making their stock weak just so they can buy back the stock at lower prices.

From CNBC:

Hedge Funds Take Early Lead in Warren Buffett's 'Big Bet'

Warren Buffett is losing his "big bet" against a collection of hedge funds, but it's still early in the game.

With a Treasury bond that will be worth $1 million at stake, Buffett has put real money behind his contention that an S&P 500 index fund will outperform five funds-of-hedge-funds over a decade, after all fees and expenses. (The money goes to the winner's favorite charity.)

Now, Fortune's Carol Loomis writes, the results for 2008 are in (it took awhile for all the funds to submit audited financial statements) .. and .. the hedge funds "soundly whipped" the index.

They fell, on average and net of all expenses and fees, only 23.9 percent. That's not great, but its still much better than the Vanguard index fund's 37 percent plunge, even with the index fund's much smaller fees and expenses....MORE

...It would appear that the House climate bill was a disguised gasoline tax with the political advantages of being opaque and outsourcing the actual tax collection to mercenaries (i.e. carbon traders).Oops, don't want to forget the grab-bag of goodies to every special interest that could get their snout in the trough, which of course will be recycled into campaign contributions.A perfect bill!

You probably recognize the snarker as yours truly.From Forbes:

Valero Energy's Bill Klesse says a carbon permit system will hasten the demise of America's oil refiners. It sure won't help any

William Klesse, chief executive of oil refiner Valero Energy, is riled up. "I think cap-and-trade is ludicrous," he says. "The whole bill is a hidden tax." The so-called climate bill wending its way through the Senate aims to create a cap-and-trade regime covering emissions of carbon dioxide and other greenhouse gases. If it passes in anything close to its current form, the bill would milk more carbon cash (payments to the government for the right to pollute) out of refiners than any other industry--somewhere between $30 billion and $110 billion a year. Valero, as America's biggest refiner (2.4 million barrels a day), would pay on the order of $7 billion a year.

The numbers are massive because the bill would hit refiners twice. First they would have to pay for allocations covering the carbon emissions from their factories (roughly 5% of total U.S. emissions). Then they would also be responsible for the tailpipe emissions from the combustion of all the automotive fuels they sell (roughly 40% of U.S. emissions). Klesse, 62, moans that politicians are "picking winners and losers" in figuring emissions allocations.

One problem with this analysis: It's motorists who will pay, as refiners simply tack carbon costs onto the price of gasoline. Valero Energy ( VLO) admits as much: Placards posted atop each pump at Valero's 5,800 branded gas stations feature the iconic illustration of a finger-pointing Uncle Sam and the words, "You will pay the price." The sign says that cap-and-trade "will cost you 77 cents or more a gallon."

One thing Klesse does not need is yet another reason for people to buy less of his product....MORE

The following article is adapted from a special report on "Popular Culture and the Stock Market" by Robert Prechter. Although originally published in 1985, the report remains so timeless and relevant that USA Today described its insights in a recent Nov. 2009 article. For the rest of this revealing 50-page report, download it for free here.

Both a study of the stock market and a study of trends in popular attitudes support the conclusion that the movement of aggregate stock prices is a direct recording of mood and mood change within the investment community, and by extension, within the society at large. It is clear that extremes in popular cultural trends coincide with extremes in stock prices, since they peak and trough coincidentally in their reflection of the popular mood. The stock market is the best place to study mood change because it is the only field of mass behavior where specific, detailed, and voluminous numerical data exists. It was only with such data that R.N. Elliott was able to discover the Wave Principle, which reveals that mass mood changes are natural, rhythmic and precise. The stock market is literally a drawing of how the scales of mass mood are tipping. A decline indicates an increasing 'negative' mood on balance, and an advance indicates an increasing 'positive' mood on balance....MORE

Be very skeptical when speaking to an Elliotician. Their "alternative wave counts" mean that they can go back to any prognostication and say they just misread the waves. Sometimes I think I should just stick with my yummy chicken entrails and tea leaves recipe, but then the wavers go and get one right. Who knows?...

That was Aug. 31 and he was calling the end of the bull rally. Here he is again, doubling down.From MarketWatch:

It might not exactly be news that Robert Prechter, the famous follower of the Elliott Wave theory, is bearish on the U.S. stock market.

That's because he has been playing the equity market from the short side for quite some time now.

But what is news is that, earlier this week, he became even more aggressively bearish than usual: He is now recommending that traders allocate 200% of their stock trading portfolios to shorting the stock market.

What should be your response to Prechter's latest advice?

There is no easy answer, unfortunately.

But this question does raise a whole range of fascinating issues having to do with how best to interpret not just his, but any adviser's, track record.

On the one hand, Prechter's advice over the last couple of years has been top-rated. It's not just that he was bearish during the financial meltdown -- he also did a good job of playing the various intermediate-term corrections along the way.

Consider, for example, the issue of the Elliott Wave Financial Forecast that was sent out at the end of August 2008, some 15 months ago. This issue, edited by Prechter colleagues Steven Hochberg and Pete Kendall, appeared just two weeks before Lehman Brothers went bankrupt. Soon thereafter, of course, the entire financial system came dangerously close to becoming completely unraveled, and the stock market went into a free-fall from which didn't finally stop until March of this year.

Hochberg and Kendall wrote: "The stock market is building up the necessary reserves for its next major move, a third wave decline at multiple degrees of trend. This should be the strongest decline of the bear market to date."

Right on target, as we now know.

Furthermore, only a couple of weeks after the March lows earlier this year, Prechter and his colleagues reduced their short-side exposure, anticipating that the rally would continue for some time....MORE

Friends and regular readers know that I am a fan of really fast computers.The U.S. National Laboratories are well represented on the "Top 500" list, with the new heavyweight titleholder being the Jaguar-Cray monster at Oak Ridge which clocks in at 2331.00 TeraFLOPS (Rpeak). Los Alamos has the world's second fastest with Lawrence Livermore, Argonne and Sandia also making the Top10.From the Wall Street Journal:

OAK RIDGE, Tenn. -- The Obama administration's push to solve the nation's energy problems, a massive federal program that rivals the Manhattan Project, is spurring a once-in-a-generation shift in U.S. science.

The government's multibillion-dollar push into energy research is reinvigorating 17 giant U.S.-funded research facilities, from the Oak Ridge National Laboratory here to the Lawrence Berkeley National Laboratory in California. After many years of flat budgets, these labs are ramping up to develop new electricity sources, trying to build more-efficient cars and addressing climate change....

...These efforts mark a third wave of spending at national labs such as Oak Ridge, a vast complex of woods and research facilities not far from Knoxville, Tenn. Oak Ridge was one of three labs set up to help build the atomic bomb during World War II. It boomed again during America's energy-independence push in the 1970s.

Oak Ridge plans to increase its staff by 25%, or 800 positions, over the next 18 months -- even as its neighbor, the University of Tennessee, has lost state funding and pared back faculty searches.

Critics of big government say the Obama energy plan gives politicians too big a role in how the nation conducts science, just as they fret about the government's increased role in the financial sector. They also question whether the government's funding push is sustainable amid mounting budget deficits.

Others, in academics and industry, say that while government-funded research has made big gains, including advances in DNA mapping and magnetic-resonance imaging, the cost of administering such research is unnecessarily high. University-funded pure research has its own string of successes in areas from physics and chemistry to biomedicine and genetics, they say, including breakthroughs that led to the laser, pacemaker, ultrasound technology and rocket fuel.

"Most of our great breakthroughs have not been through [top-down government] funding," says Michael Witherell, a former head of the government-funded Fermilab and now vice chancellor for research at the University of California in Santa Barbara....MORE

How the heck did I miss this trade?[maybe you were preoccupied with all the babbling about the grease/tallow/lard complex? -ed]From FT Alphaville:

We’ll get right to the point: garlic has outperformed gold and stocks in China becoming the country’s best performing asset this year, according to a Reuters report.

And no, the trigger has not been a sudden fear of vampire squids in China, but the idea the bulb could be used to ward off H1N1 flu, according to Morgan Stanley economists cited by the news wire.

Bear with us because the story does get weirder. As Reuters reported:

That chimes with some anecdotal evidence. The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy. “I don’t know about H1N1, but it can prevent ordinary colds,” Zhang Ping, 74, told Reuters at a vegetable market in Beijing. “Take me. I’ve not had cold for many years and every year I buy several dozen pounds of garlic.”Others have been looking for darker forces behind the surge. China Business News said coal mine bosses — who are often depicted as being both extremely rich and nefarious speculators — had been playing the garlic market, hoarding bulbs and hauling them between storehouses.

Dark forces in the form of rich and nefarious coal-mining speculators? (Sounds like - ahem - vampires to us.)

Nevertheless, there is a serious note to all this garlic madness....MORE

Better gold than oil.I’ve got no problem with non-consumables being all the rage.If someone wants to bid 2500 guilders per bulb for their tulips, have at it.The standard reference for gold is Professor Roy Jastrom’s “The Golden Constant” originally published by Wiley.

You could’ve done what I did to research the behavior of gold under deflation: head out to the Homestake mine the month Barrick was boxing up HM’s records for the archivists. Since you can’t do that now, the next best thing is the May 1, ‘09 reprinting of Jastam’s classic by Edward Elgar Publishing, updated by the above mentioned Ms. Leyland.Amazon is sold out, there’s 1 copy being offered on ebay for $176.84.

Today the Wall Street Journal's The Source blog writes:

Something rather odd has happened to all that hot speculative cash that was flowing into oil. It’s drained away and is flooding instead into gold and copper–but that doesn’t necessarily mean you should jump from energy company shares into mining shares.

Take a look at oil first. In the futures market, the price of crude surged from less than $33 per barrel in January to $82 last month, but has since drifted back to around $76.

And in truth that’s no surprise given the glut of crude and oil products that’s sitting in ships around the coast waiting for someone to buy it. Why speculate on something there’s too much of?

So, instead, the money’s coursing into gold and copper. The price of the former is hitting new records by the hour–above $1180 per ounce earlier today, compared with less than $700 little more than a year ago. The latter is hitting new highs for the year on a daily basis too.

At one level, that doesn’t make much sense. There’s no income from gold and copper and, indeed, you have to pay to store and insure the stuff if you dabble in the physical markets rather than futures....MORE

Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus.

Speaking at a conference in Singapore on Wednesday, Faber said: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".

"I think eventually there will be a big bust and then the whole credit expansion will come to an end," Faber added.

"Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".

In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war"....MORE

...Faber: Eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus.

Mish: The economy is not responding to stimulus right now, at least in any meaningful way. 100% of the GDP growth was directly related to government stimulus. The idea that government spending can start a genuine economic recovery is ridiculous. Nonetheless, government spending can start an artificial boom. The housing bubble is an example of an artificial boom. However, for a boom to start, individuals and businesses have to be willing to go along. That is the way it works in a credit based economy. Right now personal credit is contracting, credit card lending is falling, and businesses simply do not want to expand in the face of tax increases and high unemployment. Unless and until the Fed reignites another credit boom, high inflation is unlikely. The fear now should be more of what Congress does than what the Fed does. Yet it seems Congress is getting a bit leery over these huge deficits. Congress will spend of course, but will it be enough to matter much? I doubt it, at least until we have more purging of consumer and corporate debt via bankruptcy.

Faber: US government will increase its stimulus spending should the Standard & Poor’s 500 Index fall toward 900.

Mish: Agreed but it will not help for reasons stated above.

Faber: The S&P will not drop below 800 or 900, and eventually will go higher in nominal terms, but not necessary in real terms. A correction is coming in the near term.

Mish: I doubt the bottom is in, but it could be. If it is in, then I expect a retest closer to 700 than 900. It is conceivable the S&P drops to 500, which by the way I think is fair value. Japan had two lost decades and I expect the US will have them as well....MORE

In early pre-market trade the stock is down 79 cents at $51.50 after hitting a 52-week high yesterday.From Bloomberg:

Deere & Co., the world’s largest maker of farm equipment, posted a fourth-quarter net loss of $222.8 million and forecast 2010 profit that trails analysts’ estimates as the recession reduces demand from growers.

The net loss of 53 cents a share compares with profit of $345 million, or 81 cents, a year earlier, Moline, Illinois- based Deere said today in a statement. Profit in the year starting Nov. 1 will be $900 million, less than the $1.15 billion average estimate of 13 analysts surveyed by Bloomberg.

Chief Executive Officer Samuel Allen recorded a $321.8 million charge in the quarter related to a decline in the value of the landscape supply business and to give voluntary separation packages to 800 workers. Equipment sales fell 30 percent in the quarter and will be down about 1 percent in fiscal 2010, Deere said.

“Farmers are expected to be cautious in their purchasing decisions as a result of sluggish overall economic conditions and near-term profitability issues in the livestock and dairy sectors,” the company said in the statement....MORE

Tuesday, November 24, 2009

Talison Lithium Ltd., producer of almost quarter of the world’s lithium, is seeking to raise as much as A$196 million ($181 million) in an initial public offering in Canada and Australia to pay debt.

Talison, which mines lithium in Western Australia state, is seeking to sell 35 million new shares at a range of between A$4.10 and A$5.10 each as part of a proposed dual listing in Toronto and Sydney, the company said today in an e-mailed statement. Resource Capital Funds IV LP may sell as much as 3.5 million of its shares in Talison, the statement said....

...Rothschild Australia Ltd. is advising Talison and Macquarie Group Ltd. is managing the sale in Australia, Talison said. The company will soon start marketing the offer to Australian and Asian institutional investors, it said.

The Canadian IPO will be underwritten by a group led by Cornmark Securities Inc. and including Macquarie Capital Markets Canada Ltd., BMO Capital Markets, CIBC World Markets Inc., Paradigm Capital Inc. and Raymond James Ltd....MORE

...And, in a surprising turn of events, Mexicans are now sending money north to family members in the United States who have fallen upon hard times. From the New York Times last week:

During the best of the times, Miguel Salcedo’s son, an illegal immigrant in San Diego, would be sending home hundreds of dollars a month to support his struggling family in Mexico. But at times like these, with the American economy out of whack and his son out of work, Salcedo finds himself doing what he never imagined he would have to do: wiring pesos north.

Unemployment has hit migrant communities in the United States so hard that a startling new phenomenon has been detected: instead of receiving remittances from relatives in the richest country on earth, some down-and-out Mexican families are scraping together what they can to support their unemployed loved ones in the United States....MORE

Cash-strapped states in search of new revenue may establish their own “cap-and-trade” program for greenhouse gases covering more than half the U.S. economy if Congress doesn’t set up a federal emissions market.

Ten Northeastern states already have a cap-and-trade program for power plants and raised $432.8 million from carbon dioxide permit sales since September 2008. Two other multistate coalitions plan to start cap-and-trade programs in 2012 that would cover power plants and other pollution sources such as factories, cars and trucks....

...New York Diversion

New York, the largest member of the Regional Greenhouse Gas Initiative, is considering the diversion of $90 million raised through permit auctions as part of a $5 billion deficit- reduction plan. The auction revenue was originally earmarked for energy efficiency, renewable energy and consumer aid.

Instead of coupling “one big revenue piece” with the spending cuts needed to balance their budgets, states are raising taxes and fees “a bit here and a bit there,” Johnson said. “That’s where something like revenue from a cap-and-trade system comes in.”

While each state in the Northeast cap-and-trade program decides how many permits to sell and how many to issue for free, as a group they are auctioning 87 percent of their carbon dioxide allowances. In the Western Climate Initiative, state officials drawing up the rules of the cap-and-trade program want at least 10 percent of the carbon permits to be auctioned.

California Auction

California, the largest member of the Western Climate Initiative, will definitely auction some of its carbon dioxide permits, Michael Gibbs, an assistant secretary at the state’s Environmental Protection Agency, said in an interview. California’s first auction is planned for late 2011, Gibbs said....MORE

A colloquium of esteemed Political Economists on the nuanced issues essential to understanding this complex topic:

Heightened concerns about the global banking sector are front and center today. There are two press articles to note. The first is the FAZ story warning that the two regional banks that hold a majority stake in West LB indicate they are prepared to let the bank become insolvent. This may be an attempt to force capital injections by the German government. At least 6 bln euros may be needed by the end of the month. The second is an FT article reporting on an S&P study on the financial strength of large banks ahead of the new revised Basel II rules expected early next year. Simply put, some banks are better capitalized than others. S&P says, for example, that Japanese banks are among the least capitalized. Fitch echoed this sentiment noting the weak loan quality and poor capitalization by international standards. The Topix bank share index lost almost 4% today. At 131.12, it is within a few percentage points off the multiyear low set in March near 125.65 and puts the index 30% off the highs set in mid-June...MORE

And from Bloomberg:

International Monetary Fund Managing Director Dominique Strauss-Kahn said that about half of bank losses from the global financial crisis have yet to be revealed.

“It is our view we are still in the situation where a lot of losses haven’t been disclosed,” Strauss-Kahn said during questions at the Confederation of British Industry’s conference in London today. “How much is a difficult assessment, but let’s say something which is close to half of it.”

Banking systems “remain undercapitalized” in many advanced economies with “far from normal” financial conditions, Strauss-Kahn said in a speech to the conference. The IMF said in September that banks may have $1.5 trillion in toxic debt remaining on their books, which may hurt credit markets and stifle the global economic recovery.

“Probably a little more has been disclosed in the U.S. and a little less in Europe, but it’s almost half and half,” Strauss-Kahn said. “So, we still have a long way to go.”>>>MORE

Photovoltaics producer First Solar Inc. sold a 21-megawatt Riverside County solar facility to leading power company NRG Energy Inc. for an undisclosed amount, the company said today.

First Solar, based in Tempe, Ariz., is building the project in Blythe and has worked out a 20-year power purchase agreement to sell the electricity to Southern California Edison. The plant is expected to generate more than 45,000 megawatt-hours per year, offsetting more than 12,000 tons of carbon dioxide emissions in that period.

Construction, which began in September and should be completed by the end of the year, created 175 jobs, according to the company. First Solar will operate and maintain the facility under the agreement with NRG, which is based in Princeton, N.J.

Last week I sat down with NRG Energy CEO David Crane after the company's two-day analyst meeting here in Houston. We ran an abbreviated version of the Q&A in Sunday's Chronicle but we needed to edit it down greatly for space. So here's a lengthier version which includes more of Crane's thougths on electric cars, including his own Tesla.

Q: At your analyst meeting in Houston [last week] all your talk about renewable energy made you sound more a regulated California utility than an independent power producer. Why such a dramatic change?

A: To me there's no doubt that in terms of investor perception there are benefit to us of a significantly greener portfolio, or decarbonizing our portfolio. To paraphrase Bob Lutz at GM, who said he wants to take environmental issues out of the car buying equation, I feel the same way about investing in us. Whether investors know it or not there's a drag on our stock that comes with the fact that a good amount of our revenues come from traditional coal plants. That's the 20th century and we need to be developing a portfolio for the 21st century, which is not 'no coal' but it's certainly a difference balance that it is now.

Q: Why is this now a liability to investors, having this strong, cheap baseload coal capacity?

A: On the political front, this idea of renewable portfolio standards [requiring a certain percentage of energy generation come from renewable sources] has been popular in both red state and blue states. There's no more obvious example than Texas. But certainly the election of the Obama administration in a time of financial crisis just accelerates the trend. Because they start talking about a federal renewable portfolio standard, which could increase the amount of renewable energy output in the country by two or three times.The stimulus for certain types of technology is the only source of money out there. And the executive branch specifically said there will be $80 billion in loan guarantees through the Department of Energy, the vast majority of which is going to low- or no-carbon. There's no money in there for traditional coal plants. The EPA is also being more assertive in its plans to regulate CO2, so that has focused the mind that that's the way we're going....MUCH MORE

And while the headline rather gives things away, here are some selected highlights for all the bears out there.

(NB Edwards has just returned from a two week trip to Asia).

I think the next 18 months will see major ructions in the financial markets.The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?

Imagine we are in the middle of 2010. Imagine the western economies (plus Japan) are sliding back into recession as the lack of additional fiscal stimulus reduces 2010 GDP growth back to its weak underlying rate (deficits need to widen to boost the economy). Imagine also that in 2010 the Chinese economy is beginning to roll over. China’s vulnerability is perhaps far higher than the bulls suppose, having engaged in the same sort of recession defying stimulus as the US in 2003....MORE

It's the question I've been asking myself since the University of East Anglia CRU emails surfaced last week. I don't have an answer despite having read about a third of the emails.For guidance I sought out a bongo player-slash-raconteur.Here's the musician riffing on science:

"...It is interesting, therefore, to bring it out now and speak of it explicitly. It's a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty -- a kind of leaning over backwards. For example, if you're doing an experiment, you should report everything that you think might make it invalid -- not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you've eliminated by some other experiment, and how they worked -- to make sure the other fellow can tell they have been eliminated.

Details that could throw doubt on your interpretation must be given, if you know them. You must do the best you can -- if you know anything at all wrong, or possibly wrong -- to explain it. If you make a theory, for example, and advertise it, or put it out, then you must also put down all the facts that disagree with it, as well as those that agree with it. There is also a more subtle problem. When you have put a lot of ideas together to make an elaborate theory, you want to make sure, when explaining what it fits, that those things it fits are not just the things that gave you the idea for the theory; but that the finished theory makes something else come out right, in addition.

In summary, the idea is to give all of the information to help others to judge the value of your contribution; not just the information that leads to judgement in one particular direction or another...."

Long time readers will recognize the words of amateur magician and author, Richard Feynman.

He had a wide variety of interests, for example in 1965 he was awarded the Nobel prize in physics for his work in quantum eletrodynamics.

"....I would like to add something that's not essential to the science, but something I kind of believe, which is that you should not fool the layman when you're talking as a scientist. I am not trying to tell you what to do about cheating on your wife, or fooling your girlfriend, or something like that, when you're not trying to be a scientist, but just trying to be an ordinary human being. We'll leave those problems up to you and your rabbi. I'm talking about a specific, extra type of integrity that is not lying, but bending over backwards to show how you're maybe wrong, that you ought to have when acting as a scientist. And this is our responsibility as scientists, certainly to other scientists, and I think to laymen.

For example, I was a little surprised when I was talking to a friend who was going to go on the radio. He does work on cosmology and astronomy, and he wondered how he would explain what the applications of his work were. "Well", I said, "there aren't any". He said, "Yes, but then we won't get support for more research of this kind". I think that's kind of dishonest. If you're representing yourself as a scientist, then you should explain to the layman what you're doing -- and if they don't support you under those circumstances, then that's their decision.

One example of the principle is this: If you've made up your mind to test a theory, or you want to explain some idea, you should always decide to publish it whichever way it comes out. If we only publish results of a certain kind, we can make the argument look good. We must publish BOTH kinds of results.

I say that's also important in giving certain types of government advice. Supposing a senator asked you for advice about whether drilling a hole should be done in his state; and you decide it would be better in some other state. If you don't publish such a result, it seems to me you're not giving scientific advice. You're being used. If your answer happens to come out in the direction the government or the politicians like, they can use it as an argument in their favor; if it comes out the other way, they don't publish at all. That's not giving scientific advice...."

When Congress wanted to know why the hell the space shuttle Challenger blew up he was the one they asked. Something about integrity.

Here's a Feynman quote:

Physics is like sex. Sure, it may give some practical results, but that's not why we do it.-Richard Feynman

Here's one he would have liked:

Feynman joke (okay, a bit deep)

If Richard Feynman applied for a job at Microsoft

Interviewer: "Now comes the part of the interview where we ask a question to test your creative thinking ability. Don't think too hard about it, just apply everyday common sense, and describe your reasoning process."

"Here's the question: Why are manhole covers round?"

Feynman: "They're not. Some manhole covers are square. It's true that there are SOME round ones, but I've seen square ones, and rectangular ones."

Interviewer: "But just considering the round ones, why are they round?"

Feynman: "If we are just considering the round ones, then they are round by definition. That statement is a tautology."

Interviewer: "I mean, why are there round ones at all? Is there some particular value to having round ones?"

Feynman: "Yes. Round covers are used when the hole they are covering up is also round. It's simplest to cover a round hole with a round cover."

Interviewer: "Can you think of a property of round covers that gives them an advantage over square ones?"

Feynman: "We have to look at what is under the cover to answer that question. The hole below the cover is round because a cylinder is the strongest shape against the compression of the earth around it. Also, the term "manhole" implies a passage big enough for a man, and a human being climbing down a ladder is roughly circular in cross-section. So a cylindrical pipe is the natural shape for manholes. The covers are simply the shape needed to cover up a cylinder."

Interviewer: "Do you believe there is a safety issue? I mean, couldn't square covers fall into the hole and hurt someone?"

Feynman: "Not likely. Square covers are sometimes used on prefabricated vaults where the access passage is also square. The cover is larger than the passage, and sits on a ledge that supports it along the entire perimeter. The covers are usually made of solid metal and are very heavy. Let's assume a two-foot square opening and a ledge width of 1-1/2 inches. In order to get it to fall in, you would have to lift one side of the cover, then rotate it 30 degrees so that the cover would clear the ledge, and then tilt the cover up nearly 45 degrees from horizontal before the center of gravity would shift enough for it to fall in. Yes, it's possible, but very unlikely. The people authorized to open manhole covers could easily be trained to do it safely. Applying common engineering sense, the shape of a manhole cover is entirely determined by the shape of the opening it is intended to cover."

Interviewer (troubled): "Excuse me a moment; I have to discuss something with my management team."

(Leaves room.)

...

(Interviewer returns after 10 minutes)

Interviewer: "We are going to recommend you for immediate hiring into the marketing department."

So you don't think we're some cupric come lately, we posted "Gold & silver vs. copper & uranium" March 12, the week that Cu started a move which to date has resulted in 11 out of 13 up-weeks (it was also up in January and February but I had other fish to fry)....

From MarketBeat:

Copper soared 5% last week to $3.1050 per pound on Comex. This year, the metal has more than doubled, rising 123%, The Journal reports. But Copper’s ongoing run-up is coming in the face of growing stockpiles of the metal.

The Journal’s Carolyn Cui and Andrea Hotter report that the stockpiles at London Metal Exchange warehouses are at their highest level since April. In China, the world’s biggest consumer of the metal, copper, stocks have risen sixfold at the Shanghai Futures Exchange this year....MORE

What assets gain most? The higher the yield and risk on the asset, the higher the return from asset reflation.

What will upset it? Uncertainty from either renewed downside risks on the economy, or sudden rises in inflation risks that require premature rate hikes. Several central banks have started hiking rates and will be joined by others in coming months. Will that not upset the asset reflation trade? No offense, but it is only the monetary policy rates of the biggest central banks that matter here.

And what about major central banks starting the normalization process by removing excess liquidity and reserves or the unwinding of money market support measures? By our thinking, it is the price of money, rather than its quantity, that matters most. Hence, mopping up excess reserves without pushing up money rates should not impede asset reflation....MORE

A million-ton corn mountain has been built at the Central Valley Ag Oakland, Nebraska, and its twin isn't far behind.

They are taking in about 250,000 bushels of corn each day now, Tracy Denton, CVA eastern territory grain manager, told me, and they are drying 7,000 bushels an hour.

Moisture on corn coming in now is running mostly between 18 and 20 percent, about 3 points below a couple weeks ago, but is still an issue, Denton said.

The corn piled on the ground is typical for this time of year, but the big yields are "making it hard on everybody," Denton said. Harvest is no more than about 50 percent complete in this part of northeastern Nebraska, he said, adding that he hopes to be open to receive grain on Thanksgiving.

Prices of the metal jumped over 2%, outpacing gains by other metals as speculative buyers jumped into the market

Shanghai zinc futures hit their highest level in 18 months on Friday and LME prices jumped more than 2%, outpacing gains in other base metals, on speculative buying fuelled by supply concerns.

Australia's Century zinc mine, which produces a third of the country's zinc output, was due to run out of concentrate at its shipping port earlier this week, prompting buyers to look for alternative sources.

A potential squeeze in zinc concentrate supply and higher power costs in China may force some smelters to cut production, a trader in Singapore said.

China will raise power prices for non-residential users by around 5.4% from Friday, its first increase since July 2008, to compensate grid firms that lost out from a state cap on prices....MORE

That was the cryptic message from a reformed metals trader this afternoon. No rationale, no investment thesis, just "buy tin".

I couldn't help thinking of the Barney Miller episode "Child Stealers".Time traveler "Adam Boyer" comes back from 2057 and is hounded by Harris for stock tips:

[Harris, acting on a tip from a "twinkie" claiming to be a Sociology Professor from Columbia University who's traveled back in time from the year 2057 (played by the great character actor Richard Libertini), calls his broker to transfer his assets from gold bullion to the financial standard of the future--Zinc!!]:

"...no, no blue chips, either...I was thinking about Zinc!

(pause) Yeah, Zinc! What's it goin for these days? (writing the figure on a notepad)...Thirty seven and a half cents---a POUND??(The "Professor" gives Harris an encouraging nod)

...Yeah, well, I might be willin' to spring for a coupla TONS!" Source

Since the episode aired in January 1980 and zinc today is $1.075, zinc didn't do so hot (but much better than gold, which hit $850 that same month). Here's Kitco's zinc chart....

A London-based official at ICE said that the exchange is cancelling trades on dollar index futures above 76.50, after a spike in the contact that saw it jump to 82.18. The official said they are still investigating the cause for the move. Recent trades showed the contract up 0.7% to 75.89.

It’s no surprise that Warren E. Buffett can command enviable terms when it comes to bank loans. That’s the case with the $8 billion loan he is borrowing to take over the rest of railroad operator Burlington Northern for $26 billion.

Burlington Northern disclosed in a regulatory filing on Thursday that Mr. Buffett’s Berkshire Hathaway is borrowing the $8 billion from JPMorgan Chase (as administrative agent) and Wells Fargo (as syndication agent), paying about 1 percent to 2 percent over the London interbank offered rate, a common base for interest payments known as Libor.

The three-month Libor rate is currently .27 percent, magnitudes better than the 2.22 percent it was one year ago.

How can Mr. Buffett get such a good deal? As Paul Howard, a credit analyst, told Bloomberg News, Mr. Buffett probably has “a Rolodex full of potential creditors,” adding: “If he doesn’t like the terms of one, he’ll call the next one.”>>>MORE (links to Bloomberg story and SEC filing)

Trina is trading down 2.87% at $44.26. The stock is extended, having risen some 500+% from the March low.

That said. I don't think the headline overstates the advantages TSL has over the competition.A couple years ago management had a reputation for lousy shareholder relations. No one talks about that now. Their design and execution of the company's business model has been superb.From an almost fanatical attention to costs to the controversial June '08 decision to change the "functional currency" from the Renminbi to the buck, management has been ahead of the competition.As I said yesterday:

"Trina is becoming recognized as the class of the field."

They bolstered the balance sheet with a follow-on stock offering that spanked the stock in the short run while setting the company up to deal with the credit crunch with a flexibility that their peers would kill for. You get the picture, I'm impressed.From Motley Fool:

We've seen a lot of sunny solar reports this season. SunPower(Nasdaq: SPWRA)(Nasdaq: SPWRB) set a positive tone, which has been carried on by the likes of JA Solar(Nasdaq: JASO), Canadian Solar(Nasdaq: CSIQ), and Yingli Green Energy(NYSE: YGE). Strong results, all, but Trina Solar(NYSE: TSL) truly stands out from the crowd this quarter.

Trina is just killing it as a cost leader in the manufacture of solar modules. In the third quarter, the Chinese shop achieved gross margins of 28.5%, well ahead of guidance....MORE

Here's the transcript of yesterday's earnings call.We have quite a few posts on Trina, here are the results of a quick 'Search Blog". We've been following this one since April 2008, here's a post from September 11 of that year, four days before Lehman failed:

"...Trina has a very odd management style. On the one hand they have made blunder after blunder in shareholder relations. On the other, they have shown some very forward strategic thinking. One example is the move into the Italian market. They started that process a year ago when the rest of the industry was dreamin' Castilian. Trina is in Spain, but their work in developing an Italian business resulted in our July 29 post "Trina, Suntech in supply deals with Italy's Enel (STP; TSL; ENEI.MI)".Enel is Italy's largest and Europe's second largest listed utility.

Two points upfront, the currency change was not a one time, first quarter, event.The change from the Renminbi is looking smart for a couple reasons:

1) TSL's geographic diversification (26% market share in Italy, 25% of projected second half sales see:Solar: Arrivederci Germania, Viva Italia!) includes a push into the U.S. where they are currently one of three Chinese manufacturers with U.L. certification, U.S. business will be 6% of shipments in the second half, up from zero....

This stuff isn't rocket surgery."

One BIG caveat, all the alt-energy companies are currently dependent on politicians for their survival. This means you really have to pay attention to the politics/policy mood or you might wake up one morning to find all the stocks down 60%.